The Model Tax Curriculum: 2014 Revisions Provide a Valuable Tool for Accounting Programs

Editor: Annette Nellen, J.D., CPA

The AICPA has in the past published a model tax curriculum (MTC) for accounting programs to consider in developing the tax component of their curricula (see Dennis-Escoffier and Rubin, “Curriculum Tools for Tax Educators,” 39 The Tax Adviser 110 (February 2008)). This model represented the core content that any person majoring in accounting should master, regardless of where that student might ultimately choose to work. As recommended by the Accounting Education Change Commission (AECC), the model curriculum was not based on CPA exam preparation but on providing a solid foundation of tax from which to further build. Although the MTC was sponsored primarily by the AICPA, faculty members of the American Taxation Association (ATA) were also involved. In 2012, a task force of AICPA and ATA representatives was convened to revisit the MTC and recommend modifications to address changes in the tax environment since the last MTC revision in 2007 (see Dennis-Escoffier, Kern, and Rhoades-Catanach, “The Revised Model Tax Curriculum,” Issues in Accounting Education, May 2009). The authors of this article are the members of this latest task force, with Jina Etienne, CPA, CGMA, director-Taxation, serving as AICPA staff liaison.

The final report was approved by the AICPA Tax Executive Committee (TEC) on May 5, 2014. This column is an adaptation of that final report.

The MTC Task Force membership represented various constituencies with an interest in tax education. In addition, the Pathways Commission Implementation group provided guidance so that it could coordinate its work with the Task Force. Understandably, since the TEC convened the group, the Task Force’s primary frame of reference is based on positions and prior studies the AICPA sponsored. The 2012 Pathways Commission report, though, was considered in the latest revision. (The Pathways Commission report and related information are available at commons.aaahq.org.)

The difficulty in presenting any “model” document is that user groups quickly find disparities between what they perceive as feasible and the course of action the model proposal recommends. The MTC is no different. The Task Force recognizes that adoption and adaptation of the MTC may necessitate some compromises by accounting programs. Nonetheless, the group remains convinced that presenting a model curriculum provides accounting programs with a starting point for discussions. The Task Force’s intention has not been to mandate a “one-size-fits-all” approach but instead to present principles that can be used to elevate the teaching of tax concepts and rules and ensure the integration of taxation into the overall accounting curriculum.

The AICPA Vision Statement and Tax Education

The AICPA’s Vision Statement states that

CPAs deliver value by:

• Communicating the total picture with clarity and objectivity,
• Translating complex information into critical knowledge,
• Anticipating and creating opportunities, and
• Designing pathways that transform vision into reality.

A practicing accountant cannot fulfill this vision without a foundation in tax. The mission of the AICPA Tax Section is to “serve the public interest by assisting AICPA members to be the most trusted professional providers of tax services, and by advocating sound tax policy and effective tax administration.” The MTC has been developed and revised to assist students, faculty, administrators, and professionals in meeting these aspirations.

The MTC provides recommendations for designing the tax component of the academic accounting curriculum to address the Vision Statement, the Tax Section’s mission, and, to a more limited extent, preparation for the Uniform CPA Examination. The MTC’s recommendations are intended to assist educators in preparing students for initial success in any one of the various entry points to the accounting profession or in other positions in which accounting knowledge is a critical skill set. The MTC also can aid educators in designing and assessing accounting curricula that will attract students to careers in taxation. Regardless of a student’s interest in becoming a tax professional in the future, the tax curriculum should provide a sound foundation for learning relevant to any other career aspiration.

An accounting program should not implement the learning objectives presented in this MTC without significant discussion and thought given to adapting to the specific needs of and mission governing that particular program. The Task Force recognizes that the wide ­variety of accounting programs means that no one approach can be adopted without customization. For example, many programs have only one required course in taxation at the undergraduate level. Other programs may require two undergraduate courses in taxation. Some other approaches may be to integrate taxation topics into undergraduate classes and reserve specific tax-only courses for the graduate level.

Regardless of the approach taken, the Task Force believes that the Overall Learning Outcomes presented below should be adopted at a program, rather than specific course, level. These outcomes can then be achieved in course activities that are most suitable for the particular accounting program. For example, Program A may decide that the basic tax course should not include any discussion of GAAP accounting for income taxes (reserving this topic for a financial accounting course), while Program B may decide just the opposite. Another program may have a stand-alone professional ethics course, in which case discussion of tax ethics issues may be easily added to the content of that course rather than addressing it in a tax course.

The Task Force believes that having two undergraduate taxation courses is the most effective method for achieving all the outcomes, but it recognizes that this ideal is not the norm for a large number of accounting programs. The Overall Learning Outcomes, however, should be a starting point for all programs. The Task Force recognizes the difficulty (and, for some programs, the impossibility) of satisfactorily meeting all six Overall Learning Outcomes in a single course. If only one required tax course can be offered in the curriculum, programs should make every effort to also address the Overall Learning Outcomes in other courses, where appropriate.

Importance of Tax in the Undergraduate Curriculum

Tax costs can consume a significant portion of business and individual income and wealth. Nearly every economic decision involves tax considerations. The study of taxation is important for any business major, but it has added importance for students interested in careers in accounting.

Tax and financial reporting considerations often intertwine, and accountants cannot provide effective professional services without a fundamental understanding of both financial reporting and taxation issues. Results from a survey focusing on the first tax course indicate that significant gaps in understanding fundamental principles and having basic skills remain in the tax component of the accounting curriculum at a large percentage of universities. These gaps include little or no coverage of tax research, tax planning, business entity taxation, or the interaction between taxes and financial reporting (see Kern and Dennis-Escoffier, “Current Status of the Tax Curriculum in Accounting Programs,” 35 The Tax Adviser 712 (November 2004)). Because students may obtain their tax knowledge through various paths, including both undergraduate and graduate courses, a student may have significant gaps in his or her tax knowledge when important concepts are taught in elective courses. Because taxation is pervasive, complex, and critical to decision-making, the Task Force recommends that accounting faculty carefully examine the tax component of their curricula to ensure that all accounting students obtain the fundamental tax knowledge they need to begin careers in accounting or tax regardless of the path that students might take to obtain their degrees.

Objectives of the Tax Component of the Undergraduate Curriculum

The primary objective of the tax component of the accounting curriculum is that students understand the role of taxation in economic decision-making and financial reporting. A student should understand fundamental tax law and be able to apply essential tax planning concepts. The curriculum should introduce a broad range of tax issues and their impact on various taxpaying entities. While the primary focus is on the federal income tax, students should acquire knowledge that is transferable to other types of taxes imposed by other taxing authorities. The knowledge and skills provided in the tax component of the accounting curriculum should facilitate future learning in tax even if the student does not expect to become a tax professional. The tax component of the curriculum is also critical in that it shapes the perceptions of those students who may wish to become tax professionals. As such, it plays a key role in attracting students to careers as tax professionals.

Overall Program Learning Outcomes for Taxation

The Task Force reconsidered the 2007 Learning Objectives for the MTC. After discussion, those objectives were reorganized and reworded to better reflect recommendations for desired levels of learning accomplishments. Bloom’s Taxonomy was also considered to ensure that the objectives addressed appropriate levels of critical thinking for effective learning (Bloom, et al., Taxonomy of Educational Objectives: The Classification of Educational Goals. Handbook I: Cognitive Domain (Bloom and Krathwohl 1956)). The overall outcomes that follow are numbered, and the order is intended to be hierarchical. The expanded discussion of the overall outcomes (following the list of the six objectives) provides suggested secondary learning objectives for each outcome. The overall program learning outcomes for taxation are:

1. Demonstrate knowledge of the components of the basic income tax formula for individuals and business entities, understand when income and deductions are recognized, and describe when they are excluded (or disallowed) or deferred.
2. Explain the interrelationships and differences between financial accounting and tax accounting.
3. Apply analytical reasoning tools to assess how taxes affect economic decisions for individuals and business entities.
4. Demonstrate the ability to conduct tax research.
5. Understand tax-related statutory, regulatory, and professional ethics obligations and identify tax-based community service opportunities.
6. Explain basic tax policy considerations underlying common tax regimes.

Discussion of Overall Program Learning Outcomes for Taxation

1. Demonstrate knowledge of the components of the basic income tax formulas for individuals and business entitities, understand when income and deductions are recognized, and describe when they are excluded (or disallowed) or deferred.

The income tax formulas for individuals and business entities provide a basic structure for organizing tax knowledge. A student who possesses knowledge of the tax formula should be able to identify items of gross income (including character), determine exclusions from gross income and deferrals of gross income, and identify allowable deductions (and, for individual taxpayers, correctly categorize whether they are deductible in determining adjusted gross income (AGI)). Students should also be able to calculate gross tax liability, determine allowable credits, and recognize the effect of any underpayment or late-payment penalties. Once they have a basic understanding of these tax concepts, students should be able to analyze tax factors relevant for determining the optimal organizational form for a business.

2. Explain the interrelationships and differences between financial accounting and tax accounting.

Properly accounting for income taxes in GAAP-based financial statements requires an understanding of both the financial accounting and tax treatment of business activities. As students learn the tax treatment for common business income and deduction items, they should recognize the interrelationships and differences between financial and tax accounting. Students should be able to calculate book-tax differences for income and deduction items and categorize those differences as permanent or temporary. Students should understand the impact of book-tax differences (both permanent and temporary) on deferred tax assets and liabilities, current and deferred tax expense, and the effective tax rate.

3. Apply analytical reasoning tools to assess how taxes affect economic decisions for individuals and business entities.

Analytical reasoning requires students to synthesize and interpret tax law and apply their analysis to determine how taxes affect a taxpayer’s economic decisions. Taxes play a role in almost all financial decisions. At a minimum, students should be able to assess the impact of taxes on decisions that involve: the amount and timing of income recognition and deductions; property transactions that generate recognized, deferred, or no taxable gain or loss; and organizational form. Students should understand the effect of taxes on all types of entities, including unincorporated sole proprietorships, S corporations, partnerships, and C corporations.

4.  Demonstrate the ability to conduct tax research.

Tax research is the process of determining the tax consequences of business or personal activities by applying tax law to a set of facts. The conduct of tax research includes the ability to acquire new tax knowledge through independent investigation in light of changing tax laws and court decisions. Students who possess tax research skills should be able to: access relevant sources of authority; interpret authoritative sources and draw supportable conclusions regarding tax consequences; and communicate their conclusions and recommendations in a clear and concise manner. Students should develop the technology skills necessary to use online research databases.

5. Understand tax-related statutory, regulatory, and professional ethics obligations and identify tax-based community service opportunities.

Tax professionals are generally regarded as client advocates and are not subject to the independence requirements that control auditor-client relationships. However, this pro-taxpayer mindset is tempered by statutory obligations for preparers, the tax preparer rules of Treasury Circular 230, Regulations Governing Practice Before the Internal Revenue Service (31 C.F.R. Part 10), and the AICPA’s Statements on Standards for Tax Services. Tax students should understand the relevance of these requirements and guidelines for tax practice and the potential penalties for violating these statutory, regulatory, and professional ethics standards. Tax students should also be encouraged to participate in tax-based community service opportunities, such as the Volunteer Income Tax Assistance (VITA) program, low-income taxpayer clinics, and financial literacy programs.

6. Explain basic tax policy considerations underlying common tax regimes.

Although the details of the tax law change frequently, the underlying policies supporting tax systems and their components are generally more stable. Students should understand and be able to explain the economic and social policy implications of common tax provisions, such as progressive rate structures, preferential rates for capital gains, tax-deferral transactions, and limitations on certain deductions. Students should also gain a basic familiarity with tax systems other than the income tax, such as sales tax, wealth transfer tax, gross-receipts tax, property tax, and value-added tax, including criteria for evaluating tax regimes.

Teaching Methods

Faculty should use a variety of active teaching methods to achieve the learning outcomes of the MTC, with consideration of their institution’s and program’s mission and accounting curriculum. When introducing technical topics, faculty are encouraged to use an approach that integrates planning, research, and financial accounting concepts from a decision-making perspective.

The intent of the MTC is to recommend the learning outcomes a student should attain before he or she begins a professional career. As such, these outcomes may be achieved through a variety of means, including undergraduate or graduate courses, in-class or out-of-class experiences, and components within traditional nontax courses. It is important to recognize that achieving the learning outcomes cannot be accomplished via one individual income tax course that is primarily lecture-based and with minimal amounts of problem-solving activities.

Pedagogy should incorporate active learning approaches such as in-class discussions, student presentations, practitioner presentations, cases, simulations, role playing, and service learning activities. Assignments should enable students to gain tax knowledge while further developing their communication, critical-thinking, and interpersonal skills. While traditional problem-­solving can reinforce lecture and independent reading assignments, several opportunities to help students achieve the learning objectives are unique to the tax component of the accounting curriculum. For example, VITA programs (where available), financial literacy presentations, presentations to student groups, and cooperation with state and local accounting societies all may be considered as ways to help students develop their personal competencies while enhancing their tax knowledge. In addition, the almost universal access to either online research tools or CD surrogates for the online experience replicate the practice environment and assist in preparing students for online certification examinations.

Two sample syllabuses for a three-credit-hour course have been developed. Suggested projects to facilitate active learning to achieve the various learning objectives are also presented. To reiterate the point made earlier, the Task Force recognizes the difficulty in trying to fully meet all six outcomes in a single course. The sample syllabuses are intended to provide a discussion vehicle for including all six outcomes in a single course, but of necessity the instructor of the course might either curtail or eliminate coverage of some of the topics included in the sample. Only in unusual circumstances would an instructor be able to adapt a three-credit-hour course to fully address all the Overall Learning Outcomes.

Summary

The MTC can be a useful tool to assist accounting programs and faculty in providing students with foundational knowledge and skills in the tax area. Clearly, there are multiple opportunities for innovation in the tax curriculum that can help provide students the foundation to become highly valued business advisers. But to meet the changing needs of the accounting profession, faculty should periodically revisit the tax curriculum and its critical role in accounting programs to ensure that students are fully prepared to enter the business world as knowledgeable professionals.